The farming and food industries face potentially massive changes as a result of Brexit. They need to start planning now, says Chris Stott KPMG in the UK's Head of Food and Drink.
Like clouds gathering at harvest time, Brexit has left almost everyone in the food and farming sector understandably anxious about what lies ahead.
It could have a dramatic impact on the British way of life, how much we pay for our food and drink and what fresh fruit and vegetables are available on the supermarket shelves.
Take the humble potato. From the farmer who plants them to the wholesaler who distributes them, from the factory that makes frozen chips, to the restaurant that serves à la carte potato gratin; every link of the food chain will be affected.
So much depends on the deal the UK Government strikes, but that doesn’t mean companies are passive bystanders. They need to look at securing their workforce and supply chains, as well as taking advantage of the export opportunities presented by the weaker pound.
The agri-food sector is worth £110 billion to the UK economy according to Defra and we import 48% of our food, including 29% from the EU. It is not all one way traffic and last year, exports hit a new high.
People from the EU account for a third of the workforce in food manufacturing, ONS figures show, rising to two thirds in meat and poultry processing. At peak season, farmers hire 75,000 temporary labourers, almost all from the EU. A KPMG report for the British Hospitality Association shows that three quarters of waiters and waitresses are EU nationals.
No wonder the farmers and chief executives I speak to are cautious. They are very vulnerable to changes in the movement of people and goods and the loss of subsidies through the Common Agricultural Policy.
A poor outcome would add to the already rising inflationary pressures from sterling’s fall which is pushing up import prices, on top of additional labour costs such as the living wage and auto-enrolment. Our recent report on the Great British Breakfast showed how defaulting to WTO customs rules could increase the basket cost of a family fry-up by 13% to £26.61.
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We have already seen some firms file for insolvency this year, blaming higher import costs due to sterling weakness, and I believe there are more to come. We will also see more consolidation as companies seek critical mass in areas such as bakery and fresh produce.
Thankfully, when it comes to finding food on our supermarket shelves I don’t think we’re talking about a threat to the nation’s food security. Yes, outside the Customs Union and Single Market, there is a question about the cost and availability of fresh food imports from Europe – an amazing array from French artichokes to Spanish chorizo that we’ve grown used since the Single Market’s foundation. That doesn’t mean we’re about to return to an era when pasta was exotic however, or a time when fresh tomatoes were an endangered species outside the summer months.
Brexit provides an opportunity for long-term reshaping of the industry and more self-reliance, though not to the extent of turning suburban lawns into market gardens.
Whether out of choice or necessity, we should encourage home-grown sustainability and harness the scientific and technological expertise that has produced world-leading agri-tech businesses such as Genus and Anpario.
The food industry will have to adapt, just as it has done in the face of shifting trends in healthy eating, by reformulating products and focusing on what the consumer wants, whether that is indulgence or convenience. Consumers may have to learn to pay more for high quality British-sourced food.
Yes, a lot depends on the outcome of talks in Brussels. But forward-looking companies also need to think about their supply lines: whether they retain existing ones in the UK and Europe or open new ones in the US. And they need to secure their workforce by attracting and retaining staff and looking at where new technology might help.
Those who are benefiting from sterling’s weakness should take a leaf out of the farmer’s book and make hay while the sun shines. This could be a good time to take a critical look at the business and explore new products and markets, but they must also be careful not to take an unnecessary leap into the unknown.
Brexit: A catalyst for businesses to reset their futures.
This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK. You can register for the email subscription list of this column and expert views from our Brexit leaders